Obama heads to Costco to reinforce jobs message

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The morning after his State of the Union speech, President Obama will visit a Costco (COST) store in Lanham, Md., to reinforce some of the key themes laid out in the address.

Why? Because after a speech that focused heavily on jobs, income inequality and improving the economy, the president likely wants to call attention to a company that pays employees well, offers generous benefits -- and still manages to make a handsome profit.

"Costco is an example of a business that is acting on its own to pay its workers a fair wage, supporting increases to the minimum wage because it helps build a strong workforce and profitability over the long run through increased productivity, better morale and lower turnover rates," the White House said  Wednesday in a fact sheet released ahead of Mr. Obama's visit to the store.

  Costco pays well above-market wages, especially compared with other big-box retailers. It also gives most employees health insurance and allows some workers to unionize. And some executives have contributed big bucks to Obama's presidential campaigns.

Former Costco CEO Jim Sinegal was a featured speaker at the Democratic National Convention in 2012. He is a longtime Democratic donor, The Washington Post reports, and has publicly supported Obama's health care bill.

So how can Costco treat its employees so well and survive while other retailers, notably Walmart (WMT), are criticized regularly for paying employees peanuts and discouraging labor unions?

Let's look into the numbers. Businessweek wrote about one typical Costco worker who, at age 59, takes home $52,700 in annual pay, gets five weeks of vacation time a year, and sees matching 401k contributions from the company.

Costco workers earn an average of $20.89 an hour, not including overtime. Compare that to the minimum wage of $7.25 an hour. While Walmart pays about $12.67 an hour, Businessweek reports. Some 88 percent of Costco workers have company health insurance, which is much higher than Walmart's participation rate.

Compared with their counterparts at other big companies, Costco executives also tend to cultivate a fairly modest style. When he was CEO, Sinegal didn't even have a public relations person at his disposal, choosing instead to give reporters his number to call directly. The company's corporate headquarters have faded blue carpet, faux-wood tables and cheap prints on the walls.

The current CEO, Craig Jelinek, earned just $650,000 in 2012 as a base salary, along with a $200,000 bonus and stock options worth about $4 million. Walmart's CEO had twice the salary and received some $17 million in bonuses and stock grants.

Costco shares have soared 38 percent in the last two years to around $114; Walmart shares have gained 22 percent to nearly $75.

Still, it's hard to compare Costco and Walmart. Costco is a membership warehouse that people pay to shop at, and has just 450 locations. Walmart is the world's biggest retailer, with nearly 4,000 stores in the U.S. alone, and competes with super-low prices. The two stores have different kinds of shoppers and satisfy different needs.

Costco has about half as many employees per square foot of store, Bloomberg reports. "Their model is less labor intensive, which is to say, it has higher labor productivity," writes Bloomberg's Megan McArdle. "Which makes it unsurprising that they pay their employees more." 

So for many reasons, Costco is an anomaly in American business. And the way it pays and treats its employees is unusual compared to the norm.

But even so, can it still be looked at as a model of success? Can its business policies be copied, to varying degrees, by corporate America?

President Obama thinks so, which is why he's headed there. Or maybe the White House is just out of paper towels.

  • Kim Peterson

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